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Lower Demand for Steel Reduces Gerdau's Performance in Q3

This was mainly due to lower demand for steel in Brazil and other Latin American countries combined with the growing entrance of imported steel into the region. Net revenue rose 2%, reaching R$ 10.7 billion primarily due to its better performance in North America in the period. Steel production, in turn, kept constant at 4.5 million metric tons.
 
In the third quarter, operating cash flow (EBITDA) amounted to R$ 1.2 billion, which is a 13% reduction in relation to the same period last year. Net profit rose from R$ 642 million to R$ 262 million impacted by the financial result and the adherence to the Tax-Refis Recovery Program on profits generated abroad in the net amount of R$ 87 million.
 
"In a quarter in which we faced a lower demand for steel in Brazil and in other countries in Latin America, the main positive highlight of the period was our good performance in the United States. I would also like to point out that we are working hard to adjust our operations to the movements in the world steel market, which continues to be impacted by an excess of global installed capacity and by a pressure on margins. This challenging scenario of the global market has motivated us to seek to improve our efficiency and reduce operational costs, as well as adjust the rate of investments in fixed assets (CAPEX). With this, we should end the year 2014 with investments of R$ 2.1 billion, a volume below the average of the last three years," said Gerdau's chief executive officer André B. Gerdau Johannpeter.
 
In the first nine months of 2014, consolidated shipments totaled 13.5 million metric tons (-3.5%) and net revenue grew 7% to R$ 31.7 billion. EBITDA also showed an increase of 5%, reaching R$ 3.6 billion, while net income was R$ 1.1 billion, 9% less compared to the period from January to September 2013.
 
During the third quarter, sales to the Brazilian market (not including units producing special steels) were 1.4 million metric tons, which represents a reduction of 11% compared to the same period last year. Exports from the country were 291,000 metric tons and showed a 21% decrease. In the United States and Canada, 1.6 million metric tons were sold, which is 2.5% more compared to the third quarter of 2013, especially with the evolution of the industry and non-residential construction.
 
In the other countries of Latin America (excluding Brazil), there was a 10% reduction in sales volume, going to 647,000 metric tons, due to increased imports in the region and the slower pace of economic growth. The Special Steel Business Operation, however, which includes units in Brazil, Spain, the United States, and India, maintained the same levels of sales as the same period last year, of 710,000 metric tons.
 
Sales of iron ore, in turn, reached 2 million metric tons, an expansion of 85% over the same period the previous year. Of this total, 1.3 million metric tons was directed to Gerdau's mills and 692,000 metric tons to the market.
 
 
Investments in fixed assets (CAPEX) in the third quarter totaled R$ 438 million and accumulated for the year reached R$ 1.6 billion. In Brazil, the main highlight was the startup of operations in October of the hot rolled coils’ finishing line at the Ouro Branco (MG) mill, making it possible to broaden participation in segments that Gerdau already operates and enter into markets not yet covered, such as auto parts, compressors, packaging, and containers.
 
In the United States, the new continuous casting plant of Saint Paul (Minnesota) went into operation in August, increasing annual production capacity from 520,000 metric tons to 620,000 metric tons of steel. In the special steel sector, the startup of operations of a new reheating furnace at the rolling mill in Monroe (Michigan) is expected for the first quarter of 2015. Both investments will boost product quality and the productivity of these units.
 
In Mexico, the first phase of the new plant, an initiative that is being carried out by a Gerdau-Corsa joint venture, will go into operation in late 2014 with the startup of production of the steel mill whose annual capacity is 1 million metric tons. The rolling area, with an annual production capacity of 700,000 metric tons of structural steel, will start producing in 2015. The new plant will cater to the construction sector (metal construction, foundations, and retaining walls) as well as to the industry (industrial building projects and manufacturing) in Mexico and the other countries part of NAFTA.
 
In the mining area, the focus has been especially on iron ore production for own consumption, which has increased the competitiveness of the Ouro Branco (MG) mill. Considering the current situation of the global market, the pace of executing the investments in mining is being reviewed.
 

Gerdau is the leader in the segment of long steel in the Americas and one of the main suppliers of special steel in the world. In Brazil it also produces flat steel and iron ore, activities that are expanding the product mix offered to the market and improving the competitiveness of its operations. With over 45,000 employees, Gerdau has industrial units in 14 countries in the Americas, Europe, and Asia, which together represent an installed capacity of over 25 million metric tons of steel per year. Furthermore, it is the largest recycler in Latin America and in the world, and transforms each year millions of tons of scrap steel, reinforcing its commitment to sustainable development in the regions where it operates. With over 130,000 shareholders, the shares of Gerdau's companies are listed on the stock exchanges of São Paulo, New York, and Madrid.